It is no secret that FedEx Corp. and UPS Inc. have long enjoyed a near duopoly on U.S. business-to-business ground parcel traffic, and that they have used their market power to move in virtual lockstep when setting published rates for those services.
However, data compiled by consultancy Supply Chain Optimizers and obtained by DC Velocity puts that anecdote in stunning statistical perspective: Over the past 10 years, the average cumulative list rate increases on the two companies' ground delivery services have been identical across the board.
According to the data, FedEx and UPS each increased their list rates by a total of 91.5 percent on shipments weighing between one and 10 pounds; parcels weighing within that range account for a large share of the companies' ground traffic. For parcels weighing between one and 25 pounds, the increases were an identical 81.5 percent, the data show. For all ground parcel shipments, the increases were lower at 38.5 percent, but still identical, according to the data.
Domestic ground parcel deliveries represent a huge component of the two firms' combined traffic. In the fourth quarter of 2015, a period skewed by the peak holiday shipping season, UPS moved slightly less than 13 million U.S. ground parcels per day. In its 2016 fiscal year, which ended May 31, FedEx's ground-parcel unit moved an average of 7.5 million parcels a day.
Jack T. Ampuja, Supply Chain Optimizers' president, said he was surprised that the two firms moved almost as one in setting list prices for ground parcel deliveries. UPS and FedEx kept their rates the same for what Ampuja called "competitive positioning." He added that shippers who bother to compare rates between the two will "focus on ground only, giving the carriers more pricing flexibility in other services."
Indeed, the companies' list pricing for nonground services has not moved in unison over the past 10 years, according to the Supply Chain Optimizers' data. For example, FedEx's largest cumulative increase since 2006 was a 92.3-percent hike on second-day air deliveries. By contrast, UPS has raised list prices by more than 100 percent on six products in its air and ground delivery portfolio, the data show. The largest, a 105.6-percent hike, has been imposed on the company's "Next Day Air Saver" product, which guarantees deliveries by the end of the next business day.
Divergences aside, the healthy pace of price increases reflects the tremendous leverage the two firms have enjoyed through the years over business-to-business parcel traffic, according to Ampuja. FedEx and UPS do not have nearly the dominance over business-to-consumer traffic, where they compete most prominently with the U.S. Postal Service and, increasingly, with Seattle-based e-commerce behemoth Amazon.com Inc.
In an e-mailed statement, Perry Colosimo, a FedEx spokesman, said the unit's pricing strategy is "based on economic conditions and the value of the services we provide." In a separate e-mail, Steve Gaut, a UPS spokesman, said the rate increases reflect the "capital intensive" nature of UPS' services and the need to recoup its costs. Gaut questioned whether the analysis incorporated the different rate classes that comprise UPS' list pricing.
For his part, Ampuja said the conclusions were based on a colleague's analysis of years of rate tables published by the two carriers. "We believe his conclusions are rock-solid," he said.
The ground-delivery price increases do not affect the many FedEx and UPS shippers who tender parcels under contracts with their providers. Rather, the increases, combined with recent moves by both companies to base all ground parcel pricing on a shipment's dimensions rather than its weight, tend to "punish small shippers who aren't covered by contracts, and have applied no science to their packaging," Ampuja said.
In late 2015 and early 2016, FedEx and UPS shifted to dimensional pricing on parcels measuring less than three cubic feet, which represent the lion's share of e-commerce traffic. The change was expected to lead to hefty rate increases for shippers of lightweight and bulky items unless they streamlined their packaging to eliminate excess cube, or added density to their consignments.
The carriers said the change in their pricing formulas was justified to compensate them for the disproportionate amount of space those items occupy aboard a delivery van.